| M & B Joint Venture, Inc. v Laurus Master Fund, Ltd. |
| 2008 NY Slip Op 01835 [49 AD3d 258] |
| March 4, 2008 |
| Appellate Division, First Department |
| M & B Joint Venture, Inc., Respondent, v Laurus MasterFund, Ltd., et al., Appellants, et al., Defendants. |
—[*1] Salon Marrow Dyckman Newman & Broudy LLP, New York City (Richard P. Romeo ofcounsel), for respondent.
Order, Supreme Court, New York County (Rolando T. Acosta, J.), entered January 16, 2007,which denied the motion of defendants Laurus Master Fund, Ltd., Laurus Master Fund, Ltd., asagent, 14-16 East 67th Street Holding Corp. (collectively Laurus), to cancel the notice ofpendency, affirmed, without costs. Order, same court and Justice, entered February 23, 2007,which denied Laurus's motion to dismiss the complaint, modified, on the law, to the extent ofgranting the motion to dismiss the cause of action for unjust enrichment, and otherwise affirmed,without costs.
Plaintiff claims an equitable lien in the face of its failure to obtain an allegedly agreed-uponmortgage to secure a $490,000 bridge loan it extended to defendant Penthouse International, Inc.,in connection with the refinancing of the latter's townhouse, which mortgage was intended to besecondary to Laurus's $24 million consolidated first mortgage. There was a basis for the notice ofpendency (see 5303 Realty Corp. v O & Y Equity Corp., 64 NY2d 313, 320 [1984]). Theevidence, not only of the bridge loan but also of the conversation with a Laurus official and aPenthouse representative during which Penthouse allegedly agreed to the mortgage on theproperty and Laurus was made aware of the mortgage, supplemented the allegations of thecomplaint to sufficiently state a cause of action for an equitable lien (see Teichman vCommunity Hosp. of W. Suffolk, 87 NY2d 514, 520 [1996]).
However, the cause of action for unjust enrichment should have been dismissed becauseplaintiff failed to identify the benefit bestowed on Laurus as a result of the bridge loan (see CDR Créances S.A. vEuro-American Lodging Corp., 40 AD3d 421, 422 [2007]). The general conclusion thatLaurus's entire transaction would otherwise not have gone through was neither alleged in thecomplaint nor a reasonable inference therefrom. Similarly, it was not alleged that plaintiffextended the loan at Laurus's behest (seeGeneral Sec. Prop. & Cas. Co. v American Fleet Mgt., Inc., 37 AD3d 345, 346 [2007];Kagan v K-Tel Entertainment, 172 AD2d 375, 376[*2][1991]).
We have considered appellants' other contentions and find them unavailing.Concur—Lippman, P.J., Mazzarelli and Sweeny, JJ.
Gonzalez and McGuire, JJ., concur in part and dissent in part in a memorandum by McGuire,J., as follows: I agree with the majority that Supreme Court erred in denying that aspect ofdefendants-appellants' motion to dismiss which sought dismissal of the cause of action for unjustenrichment. I disagree, however, that the court properly denied that aspect of that motion whichsought dismissal of the claim for an equitable lien, and that Laurus' separate motion to cancel thenotice of pendency was properly denied. Accordingly, I respectfully dissent in part.
On February 23, 2004, defendant Penthouse International, Inc. (PHI) entered into a series ofagreements with defendant Laurus Master Fund.[FN1]Pursuant to the agreements, Laurus provided a total of $24 million to PHI in exchange for amortgage on a townhouse located at 14-16 East 67th Street (the premises). On that same day, PHIconveyed the premises to P.H. Realty Associates, LLC (P.H. Realty), a holding company inwhich PHI held a 99% interest. P.H. Realty, in turn, delivered a deed in lieu of foreclosure toLaurus, which placed the deed in escrow. On April 15, 2004, the agreements evincing Laurus'mortgage on the premises and the deed between PHI and P.H. Realty were recorded.
PHI defaulted on the agreements in August 2004, and Laurus obtained a judgment offoreclosure and sale in January 2006. P.H. Realty conveyed the premises to 14-16 East 67thStreet Holding Corp., an entity wholly owned by Laurus, by a deed recorded on May 25, 2006.
On October 20, 2006, plaintiff commenced this action claiming, among other things, that ithas an equitable lien on the premises and asserting a cause of action for, among other things,unjust enrichment. In the complaint, plaintiff alleges that "[i]n February, 2004 P.H. Realtyapproached [plaintiff] and asked [plaintiff] to provide P.H. Realty with a Loan in the amount of. . . [$490,000] . . . to enable P.H. Realty to acquire and subsequentlyrefinance [the premises] . . . ." Plaintiff also alleges that "[i]t was understood andagreed that the Loan was short term purchase money financing to be used by P.H. Realty in theacquisition of the [premises] and the subsequent refinancing of the mortgage debt on the[premises]," and that "[i]t was understood and agreed that in connection with the Loan. . . P.H. Realty was to execute and deliver to [plaintiff] a promissory note and asecurity interest in the [premises] which security interest would be a second priority mortgagebehind Laurus who [sic] held the first mortgage on the [premises]." According toplaintiff, it transmitted $490,000 to defendant Newman, the attorney who acted as the escrowagent for PHI and P.H. Realty, with instructions to hold the funds in escrow until plaintiff orNewman received "a fully executed promissory note and second priority mortgage secured by the[premises]." Plaintiff alleges, however, that Newman released the funds [*3]to P.H. Realty without obtaining the promissory note and secondpriority mortgage. Plaintiff claims that it was repaid $100,000 of the loan, but that an unpaidbalance of $390,000 remains due. In addition to filing its summons and complaint, plaintiff fileda notice of pendency of the action.
By an order to show cause signed by Supreme Court on November 8, 2006, Laurus, whichwas seeking to sell the premises, moved to cancel the notice of pendency on the ground that"[p]laintiff ha[d] no interest that affects the [premises]," i.e., had no cause of action againstLaurus. Immediately after moving to cancel the notice of pendency, Laurus moved to dismiss thecomplaint as against it. Plaintiff opposed both motions. In separate orders, Supreme Court deniedboth motions, and this consolidated appeal ensued.
"In cases where the court has considered extrinsic evidence on a CPLR 3211 motion, theallegations are not deemed true. The motion should be granted where the essential facts havebeen negated beyond substantial question by the affidavits and evidentiary matter submitted.Allegations consisting of bare legal conclusions, as well as factual claims either inherentlyincredible or flatly contradicted by documentary evidence, are not presumed to be true andaccorded every favorable inference" (Biondi v Beekman Hill House Apt. Corp., 257AD2d 76, 80-81 [1999] [internal quotation marks, citations, ellipsis and brackets omitted],affd 94 NY2d 659 [2000]; see Maas v Cornell Univ., 94 NY2d 87, 91 [1999];Morgenthow & Latham v Bank of N.Y. Co., 305 AD2d 74, 78 [2003]). Concomitantly,where extrinsic evidence is used, the standard of review on a CPLR 3211 (a) (7) motion is"whether the proponent of the pleading has a cause of action, not whether he has stated one"(Guggenheimer v Ginzburg, 43 NY2d 268, 275 [1977]). Here, essential facts alleged inthe complaint regarding plaintiff's claim for an equitable lien have been negated beyondsubstantial question by the extrinsic evidence on this motion.
To establish an equitable lien, "plaintiff must show a particular agreement by defendant toconfer a security interest in the property at issue. Plaintiff's mere expectation of payment,however sincere, is insufficient to establish an equitable lien" (Security Pac. Mtge. & RealEstate Servs., Inc. v Republic of Philippines, 962 F2d 204, 209 [2d Cir 1992] [internalquotation marks, citations and brackets omitted]; see Teichman v Community Hosp. of W.Suffolk, 87 NY2d 514, 520 [1996]).
Newman, the attorney who acted as the escrow agent for PHI and P.H. Realty, averred thatnonparty 21st Century Technologies (21st Century) wired Newman over $1,000,000 betweenJanuary and February 2004. 21st Century's president, Dunn, represented to Newman that all ofthe funds came from 21st Century. Dunn instructed Newman that the funds were to be loaned toPHI, and that a second mortgage on the premises in favor of 21st Century, subordinate tothe mortgage of Laurus, should serve as security for the loan. A letter on 21st Century'sletterhead, dated February 20, 2004, from Dunn to Newman confirms Newman's assertions thatDunn represented that all of the funds transferred by 21st Century to Newman came from 21stCentury, and that the second mortgage was to be in favor of 21st Century. Moreover, Newmanexpressly averred that he was not aware of plaintiff prior to the consummation of the loantransactions between PHI, Laurus and 21st Century.
According to Newman, he released the funds to PHI around the date the agreements wereentered into between PHI and Laurus, but did not obtain a second mortgage in favor of 21stCentury because the agreements between PHI and Laurus prohibited additional encumbrances onthe premises. The various agreements between PHI and Laurus, dated February 23, 2004,corroborate Newman's affidavit. Pursuant to those agreements, PHI warranted that the premises[*4]were and would remain free of liens, security interests andother encumbrances, except those expressly permitted by the agreements. A breach by PHI of theprovisions proscribing liens, security interests and other encumbrances would have constituted adefault under the agreements, entitling Laurus to accelerate repayment of the note, a default rateof interest and foreclosure.
The conclusory allegations in the complaint to the effect that there was an agreementbetween PHI or P.H. Realty and plaintiff that PHI or P.H. Realty would confer upon plaintiff asecurity interest in the premises are flatly contradicted and negated beyond substantial questionby the extrinsic evidence on the motion. Specifically, Newman's affidavit, the February 20, 2004letter, the mortgage, security agreement and mortgage consolidation agreement between PHI andLaurus demonstrate that neither PHI nor P.H. Realty agreed to confer a security interest in thepremises to anyone other than Laurus.[FN2]Moreover, even assuming PHI or P.H. Realty did agree to confer a security interest in thepremises based on the loan from the funds released to PHI by Newman, plaintiff was not theparty who would be entitled to such an interest. Rather, as Newman's affidavit and the February20, 2004 letter make plain, 21st Century sought the security interest.
None of plaintiff's submissions in opposition to the motion to dismiss rehabilitated theconclusory allegations in the complaint that were flatly contradicted by the other extrinsicevidence. The affidavit of Brent Romney, an investor in plaintiff, indicates nothing more thanthat plaintiff loaned PHI or P.H. Realty $490,000. The affidavit does not support plaintiff'sallegations that PHI or P.H. Realty agreed to provide plaintiff with a security interest in thepremises.
Kevin Romney, another investor in plaintiff, averred that in February 2004 he had atelephone conversation with an agent of PHI and P.H. Realty and an unidentified official ofLaurus. Kevin Romney stated that:
"4. During that conversation, [he] asked the official [from Laurus] if [the official] understoodthat [plaintiff] would be making a short-term loan to P.H. Realty to allow [it] to acquire theProperty. During the conversation, it was understood that [plaintiff]'s short-term loan was to havesecurity in the form of collateral on the Property.
"5. [He] also asked the official if he could confirm that Laurus was to provide some type offunding with respect to P.H. Realty's acquisition of the Property, which funding would includefull payment of the short-term . . . purchase money loan [that plaintiff wasproviding]. That official responded, 'That's what our intent is.'
"6. Thus, in February 2004, prior to [plaintiff] making any purchase money loan to P.H.Realty, Laurus was fully aware that [plaintiff] was making a short-term purchase money loan toP.H. Realty, that such loan was to be used by P.H. Realty to acquire the Property, and further that[plaintiff] was to receive some sort of collateralized security on the Property in exchange for that[*5]loan."
Notably, the vague assertion in paragraph 4 (cast in the passive voice, to boot), that "it wasunderstood" that plaintiff was to have a security interest, is not supported by any allegationsidentifying what was said and by whom, or otherwise establishing this understanding. Indeed, forall that appears in the affidavit, the alleged "underst[anding]" may have been Kevin Romney'sunilateral understanding. Nowhere in the affidavit, after all, does he assert that the Laurusrepresentative said anything that evidenced a bilateral understanding.
Putting aside these infirmities of the averments, they fail to demonstrate "a clearintent between the parties that [the premises] be held [or] given . . . as security for[the loan]" (Liselli v Liselli, 263 AD2d 468, 469 [1999] [emphasis added], lvdenied 94 NY2d 751 [1999], quoting Datlof v Turetsky, 111 AD2d 364, 365 [1985];see Miller v Marchuska, 31 AD3d949, 951 [2006] [specific property must be given to secure loan]). Rather, these avermentsindicate nothing more than an agreement to pay a debt out of a designated fund, which does notoperate to create an equitable lien (Datlof, 111 AD2d at 365, citing James v AldertonDock Yards, 256 NY 298, 303 [1931]).
At bottom, plaintiff had nothing more than an expectation that the loan it advanced to PHI orP.H. Realty would be repaid. That expectation is insufficient to support a claim for an equitablelien (see Scivoletti v Marsala, 61 NY2d 806, 809 [1984]). Because plaintiff does nothave a claim for an equitable lien (see generally Guggenheimer, 43 NY2d at 275), thataspect of Laurus' motion seeking dismissal of that claim should have been granted. Moreover,since plaintiff does not have a claim against Laurus for an equitable lien, the very claim uponwhich plaintiff's filing of the notice of pendency was predicated (see CPLR 6501), thenotice of pendency should be cancelled (see Liselli, 263 AD2d at 469; Borrero v EastHarlem Council for Human Servs., 165 AD2d 807 [1990]).
I agree with the majority for the reasons it provides that plaintiff's cause of action for unjustenrichment should be dismissed as against Laurus. Accordingly, for the reasons stated above, Iwould reverse the orders appealed, grant both motions, dismiss the complaint as against Laurusand cancel the notice of pendency.
Footnote 1: Laurus Master Fund in itscapacity as an agent of 14-16 East 67th Street Holding Corp. was also named as a defendant.
Footnote 2: In addition to being flatlycontradicted by the extrinsic evidence, plaintiff's allegation that PHI or P.H. Realty grantedplaintiff a lien on the premises is inherently incredible (see generally Fernicola v New YorkState Ins. Fund, 293 AD2d 844 [2002]). After all, in the event that PHI or P.H. Realtypermitted such a lien on the premises, they would have defaulted under the February 2004agreements, and placed at risk $24 million in funding for a $490,000 loan.